2024-04-24

Research Question

What impact do interest rates have on loans in the United States?

Research Objectivse

  • Investigate the correlation between interest rates and the number of loans issued in each category.
  • Analyze how variations in interest rates influence the total dollar amount of issued loans for each loan category.
  • Assess the impact of rising and falling interest rates on the delinquency rates of loan payments.

Hypothesis

Our hypothesis posits that higher interest rates will result in:

  • A decrease in total dollar amount of loans.
  • A decrease in the number of loans.
  • An increase in the delinquency of loan payments.

These effects are expected to be observed across four types of loans: mortgages, credit cards, auto loans, and student loans.

Data Overview

Quarterly datasets include:

  • Interest Rates: Mortgages, 48-month auto loans, credit cards (Federal Reserve Bank of St. Louis).
  • Student loans (Federal Student Aid).
  • Debt Statistics (New York Fed’s Center for Microeconomic Data).
  • Consumer Price Index CPI (U.S. Bureau of Labor Statistics).

Coverage period: From 2003 to 2023.

Data Manipulation

  • All tables were joined together based on ‘Year’ and ‘Quarter’
  • To account for inflation, the Total Dollar Loan Amount was adjusted using the following formula:

Adjusted Amount = (Unadjusted Amount / CPI for Quarter) * 100

  • Monthly Consumer Price Index (CPI) was averaged across months to derive quarterly figures.

Analysis of Loan Amounts and Interest Rates

Analysis of Loan Volume and Interest Rates

Analysis of Loan Delinquency and Interest Rates

Conclusion

  • Auto Loans seem to heavily dependent on interest rates and move in ways we hypothesized
  • Mortgages, Credit Cards, and Student Loans have more complicated relationships with interest rates. Some ideas for why are…
    • Mortgages - Likely because people need somewhere to live and ability to refinance allow for more complex relationship
    • Credit Card - Consumer spending habits don’t depend strongly on interest rates
    • Student Loans - Interest rates aren’t a deciding factor in whether people go to school or not
  • Interest Rates and their affect on the economy is complex and not a striaghtforward relationship